Newmont Mining Corp. (NEM:NYSE) had a "solid" Q3/17, during which "free cash flow shines," analyst Andrew Kaip of BMO Capital Markets wrote in an Oct. 26 research note.
The company's headline Q3/17 earnings per share was $0.39, which was "above consensus of $0.33" and "essentially in line with our estimates of $0.39," Kaip noted. Similarly, Q3/17 production met expectations, at 1.339 Moz.
All-in sustaining costs (AISCs) were $943/ounce, coming in below BMO's projected $994/ounce, said Kaip. Likewise, outlay for capital expenditures was $194M, which was also less than BMO's estimate of $250M.
Consequently, Kaip indicated, Newmont's operating and free cash flows during the quarter exceeded expectations. Actual operating cash flow was $685M and compared to an expected $585M. Free cash flow was $491M and surpassed the anticipated $335M.
At the end of Q3/17, Newmont's "net debt was $1.1B, including $3B in cash offset by $4B in debt," wrote Kaip.
The analyst relayed, too, that Newmont reiterated its production guidance for 2017, which is 5–5.4 Moz, along with AISCs of $900–950/ounce. It also kept its capital guidance for the year at $890–900.
BMO's research note included an operational update as well. Newmont announced it plans to proceed with construction at the Quecher Main deposit in Peru, "which is expected to extend Yanacocha mine life to 2027," said Kaip. Newmont estimates the project will initially require $250–300M in capital and will eventually generate "an internal rate of return of +10% at $1,200/ounce gold."
According to Kaip, Newmont achieved the following production milestones in Q3/17:
1. Tunami expansion: Commercial production was reached, and the company is considering another expansion there.
2. Twin Underground: First production was achieved, with commercial production anticipated in 2018.
This mining firm will share its longer-term corporate outlook during its Investor Day in December 2017.
BMO concluded that Newmont "has established a solid track record of execution and has delivered superior free cash flow returns, supporting an improved balance sheet. Announcement of the next series of expansions will add to an already peer-leading reserve life. These attributes, combined with above-average leverage relative to peers, position NEM as the preferred large gold producer under coverage."
BMO has an Outperform rating and a $45 per share target price on Newmont, whose stock is now trading at around $36.12 per share.
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Disclosures from BMO Capital Markets, Newmont Mining, Oct. 26, 2017
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures:
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Newmont Mining within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Newmont Mining within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Newmont Mining.
Disclosure 6A: Newmont Mining is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 6C: Newmont Mining is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 9: BMO Capital Markets makes a market in Newmont Mining.
Disclosure 16: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of Newmont Mining.
Disclosure 17: Newmont Mining has paid or reimbursed some or all of the BMO Nesbitt Burns Inc. analysts travel expenses.
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